The latest Bank of England survey recorded a decline in 1-year inflation expectations to 3.9% from 4.8% the previous survey in November while expectations for the following 12 months declined to 3.0% from 3.4%. Long-term expectations also edged lower and the decline will tend to increase central bank confidence that overall expectations are relatively well anchored. Lower expectations could nudge the bank towards a less aggressive stance on interest rates. Sterling was hampered by a fresh slide in equities, but the overall performance was again notably resilient given overall risk trends.
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The Euro was unable to make further headway after Friday’s European open. ECB council member Kazimir stated that the bank was not on the finishing line on interest rates and that rate hikes needed to continue, but there was no need to speculate on the May rate decision. Although European bourses opened higher with notable gains, sentiment quickly deteriorated again. As equity markets moved lower, there was net selling in European currencies. The overall losses were, however, limited given that there were also important reservations over US banks. Just ahead of Monday’s Asian open, the Swiss authorities announced that UBS had taken over Credit Suisse. Major global central banks also announced co-ordinated action to boost dollar liquidity in global markets. The moves had some impact in easing immediate concerns surrounding the European banking sector and the Euro rallied. Underlying confidence remained fragile, however, and the Euro was unable to hold higher against the dollar.
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14.00 Christine Lagarde Speech
The University of Michigan consumer confidence index retreated to 63.4 for March from 67.0 the previous month and below consensus forecasts of 67.0. The current conditions component retreated to 66.4 from 70.7 and the expectations component also retreated to 61.5 from 64.7. The 1-year inflation expectations index retreated to 3.8% from 4.1% while the 5-year expectations edged lower to 2.8% from 2.9%.
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